Income and Compensation Defined

[John J. Bulten]

Since no one replied, I'll restart:

http://losthorizons.com/forum3/topic.asp?TOPIC_ID=1465

WHEN IS PAY-FOR-WORK CONSTITUTIONAL INCOME? (DRAFT 04/27/07)

http://www.losthorizons.com/appendix.ht ... ngOfIncome and http://www.losthorizons.com/Intro.pdf provide foundational context.

Skeptics who cannot rebut our careful use of canons of construction to explicate statutory definitions like "wages" and "trade or business" often retreat to the field of undefined words to attempt to carry their waning banner: specifically the words "income" and "compensation". My conclusion is that this retreat is a justifiable stratagem because there is a viable attack from such a bunker position, and that therefore this undefined ground should be vanquished as carefully as the defined ground has been. Pete, TaxUsNot, others, and I have generally contented ourselves with general aerial bombardment. But it's time for us to move in to this territory rightly ours.

The attack comes in the form of requests like: "Why is your work for pay (since it increases your wealth, when realized and is under your dominion) not included in 'gross income' of section 61?" "Please explain the instances where pay for work is not compensation for services." "If Congress has defined [compensation for services] differently for purposes of section 61, please show me where." These attacks rightly begin with the canon that, in the absence of definition, the ordinary meaning of "income" and "compensation" applies (as pp 65-67 of CtC teach).

Our position is that "income" means, stated with great simplification, just "taxable gain". Pete's first link above says the same without the simplification. As for "compensation", I must admit a synecdoche which I and others have consistently but unconsciously employed. We have frequently used the word "compensation" to mean only "income derived from compensation", i.e., the gain portion of compensation rather than the even-exchange portion as well. This putting of the part for the whole has no effect on our position, because the gain portion is the only portion we are concerned about; the income derived is the same whether or not synecdoche is used. It permits a little confusion, but this confusion is widespread and even shared on the part of the skeptics mentioned, who in the same forum have employed the synecdoche in statements like "'Compensation for services' is considered a portion of gross income" and "Section 61 ... specifically includes 'compensation for services' as part of gross income." To be technically correct, "compensation" is the first of "items of gross income" (26 CFR 1.61-1(a)), i.e., a source of income, not a portion or part of income. It is "included in gross income" (26 CFR 1.61-1(b)(3)), i.e., it derives gross income without being gross income. Synecdoche by myself and others is also correct under the ordinary rules of interpreting figures of speech, but at this time I will employ the technical category of "item of income". Given that restriction, "compensation" does indeed have its ordinary meaning, but since we are only concerned with the gain or income derived from compensation, we will focus our energies on the word "income". By making this admission, I know I am downplaying certain references of Pete's, such as to the Classification Act of 1923, but I believe his statements are accurate and important to understand, whether they are major or minor pieces of the puzzle.

Having crossed this pons asinorum, the question can be stated as titled above, and is ably answered by the second link above. My lastest research, however, indicates that preparing court defense, and debate offense, is necessary to a full-orbed position (taking some old statements of babar and TaxUsNot to heart). Here is an attempt to provide that position (without attempt to supply full cites when they are familiar to many and often appear in CtC itself).

1. The common meaning of income is gain, not "all that comes in" (Southern Pacific v Lowe). Only this common meaning accords with the phrasing of Springer v US, and the phrasing in the 1941 Treasury Report, "The largest portion of consumer incomes in the United States is not subject to income taxation." I can't imagine someone seriously disagreeing on point 1. And the Treasury Report also supports point 2, because how could there be income not subject to income taxation, unless the subject of tax is more limited than just the subject "gain"?

2. Statutory meaning of income is taxable gain, i.e. gain which Congress has jurisdiction to tax. Congress cannot tax anything they want (10th Amendment), but is limited by their Constitutional powers, as a canon of construction (Banana v Fruit). For instance, Congress does not have the power to tax 1st or 14th Amendment freedoms (Murdock v PA, analysis of state tax which is applied to any tax) or 10th Amendment rights (Bailey v Drexel). Point 2 is a tautology and can be stated: In statutes, regulations, case law, and IRS pronouncements, since we are only discussing gains which Congress can tax, we are not including gains which they can't tax. This meaning of income is now Constitutionally inviolable (16th Amendment, Eisner v Macomber, Merchants v Smietanka).

3. Gain from work is taxable only by excise. Right to work is within the untaxable rights to liberty and property (Coppage v Kansas), aka Jefferson's inalienable rights (Butcher Union v Crescent City). Congress may not tax right to work in itself because it would be a direct tax, but they have discovered how legally to move some of the gain from work into their jurisdiction, when it would not otherwise be there, by designating it an indirect tax (Pollock and Brushaber). (Digression: It seems to me Brushaber actually implies that if the 16th Amendment had been part of the text of the 1894 Act, it would have been Constitutional. That is, the only reason it was unconstitutional was that Congress forgot a note to the effect that income tax was indirect; in its absence the tax could have been either, and the USSC was compelled to rule in the taxpayer's favor that it was direct, but in its presence the tax was constitutionally indirect. Brushaber warned of danger that the Constitutional tax might become direct in application, but IMHO they will powerfully avoid having to say that has happened. Which they can.) This tax is indirect and is an excise for classification purposes (Steward v Davis; also 1862 form "under the excise laws", Pollock as to the 1880 tax, Flint v Stone Tracy as to the 1909 tax, Brushaber "in the nature of an excise"). I don't think there's anyone left seriously arguing the income tax is direct, or that its subject is the work or right itself.

4. Gains are assessed by either the worker or the law. Usually only the worker may assess gain from work (section 93 of the 1862 act, RS 3173 as amended, 26 USC 6012 and 7602). Of course the Secretary may assess after protracted failure by the worker to assess and do so correctly. But the Secretary may not assess without statutory or regulatory permission, which permissions are carefully crafted to retain the excise nature of the tax. For example, the IRS may assess upon credible report of "wages" or "trade or business" because (as CtC reveals) these are tied to excisable activities (3121, 3401, 1402, 6041). The gain from wages is defined as equal to the wages. The IRS may also assess upon credible report of miscellaneous "income" because income is excisable per the Constitution. When the IRS receives reports which disagree, it does have the power to overrule the worker's assessment in favor of one evidenced by the disagreeing report (so long as it's following its legal authority for doing so, which we often wonder about), because the disagreeing report provides (disputed) evidence of excisable activity. (OTOH, if the worker assesses high, even if illegally, the IRS is under zero pressure to dispute the assessment when it can just keep the cash. After all, the worker was responsible to assess.) In short, a gain not evidenced by the worker or the law is not income. How could it be?

5. As for me, I and the law have assessed zero or negligible gain on my pay. First, I made a CtC assessment, properly reporting any gain I thought might conceivably be taxed under law (e.g., bank interest). Second, I could have been assessed under law if a misstatement (that certain payments were wages) were allowed to stand. I corrected that statement properly (4852) and provided further evidence that it was correct (beyond my jurats, I added a Position Statement of Worker). Third, I could be assessed under law if it is proven in court that I was an independent contractor with "net earnings from self-employment" in the course of a "trade or business" (1402), or if I was paid in the course of someone else's "trade or business" (6041), or if other evidence of "income" is admitted in court. Toward this I am beginning to agree with diller72, babar, et al., and conclude that defensive rebuttal of these positions should also be proactively submitted to IRS with the Position Statement of Worker. However, this evidence could only be made by a firsthand party (FRoE), and must require admission of an excisable activity, usually via a term of art. If no such evidence exists, any contrary assessment is an IRS error and cannot be permitted to stand by the USSC. There is simply no other legal way to assess gain contrary to the worker's assessment.

Therefore, my pay is not income; and in general, pay is not income when the worker correctly assesses such and is in agreement with all laws and regulations.

To reframe this last essential point differently, let's ask the question the feds must ask to take the battle to the next level: how else could my assessment be illegal or incorrect? First, my assessment could be illegal if some law not mentioned already can be invoked, upon evidence, to link my pay to another excisable nexus. I am of course prepared for further presentations of law and facts that might create a new nexus. Second, my assessment could be incorrect if I used an improper mathematical method of accounting. For example, stock gains are assessed on cost basis, and no other accounting basis is legal (though there may be an exception to that). Wages are assessed as being income in totality, i.e., on a zero-cost basis, and no other accounting basis is legal for wages. But if no correct evidence exists linking my pay with any accounting requirement, I am free to choose my accounting basis among Generally Accepted Accounting Principles. I could conceivably claim zero basis even in the absence of evidence of wages, and report all my pay as income. I was surprised to realize that we were free to do that all the way back to 1862: anyone who volunteered to treat his pay the same as a government salary would have been welcomed, and has been ever since. I could also claim cost basis and itemize my costs. I could also claim market value basis and assess no gain on an even exchange. The fact that pay is now "generally" assessed on a zero basis does not impair my freedom. To impeach it, there must be evidence that zero basis is mandated. (And that will not happen under the Constitution.) However, the feds will certainly try to manufacture evidence that seems to mandate it, to which we will turn when it appears. In short, with the prior presumptions rebutted, and my testimony that no other evidence has been admitted to show my pay derived income in any other way, the burden of proof returns to the feds to submit some evidence.

Citations will not do the trick because they must remain Constitutional, and cannot create facts. We frequently hear Glenshaw and Kowalski to this effect. "This language was used by Congress to exert in this field 'the full measure of its taxing power' .... the intention of Congress to tax all gains except those specifically exempted .... Here we have instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion" (Commissioner v Glenshaw Glass, 348 US 426, 429, 430, 431). Since this is about classifying damages as income, not about jurisdictional limits, the USSC does not need to state such tautological qualifiers like "the full legitimate measure" or "all taxable gains" for them to be absolutely implicit. That is why the phrasing is "here we have" accession/realized/dominioned rather than accession/realized/dominioned "is always income": it is a necessary rather than a sufficient condition to "income".

But even if it were stated as a sufficient condition, it would be an incomplete one. The sufficient condition is necessarily accession/realized/dominioned/Constitutional. For example, "in the absence of a specific exemption, therefore, respondent's meal-allowance payments are income within the meaning of 61 since ... 'undeniabl[y] accessions to wealth, clearly realized, and over which the [respondent has] complete dominion'" (Commissioner v Kowalski, 434 US 77, 83). This is stated as a sufficient condition. However, the remainder of the sufficient condition, its Constitutional taxability, was already supplied by the ever-present term of art: "On his 1970 income tax return, respondent reported $9,066 in wages" (434 US 77, 81). Since respondent effectively admitted he had "wages" from a thereby excisable "employer", the meal payments from that employer were also excisable. Even if "the starting point ... is ... the full measure of its taxing power", that starting point is invisible if no evidence is produced that payments were within the taxing power. Such evidence must necessarily take the form of facts which align with one or another specifically stated excisable activities. Compensation is not the mark of an excisable activity: income from compensation is. So if there was no proof of gain from my labor, the argument is over.

We are winning this battle in court and pressing their retreat to the next level. I want to emphasize, more strongly than I have, the proactive defense against all presumptions, not just against wages. Babar was right that if an invisible presumption manifests in court, such as that zero basis can be mandated, we must be prepared to go for the jugular, the legal cognizance of conversion to direct tax. So far the courts have ALWAYS used the terms of art to prove why there was excisable activity and income, and have never to my knowledge had to retreat (as the debaters must) to arguing income in absence of proven excisable activity. Someday they will, and they may invoke zero basis and expose that jugular. IMHO, their next step will be "tax reform" instead, a threat we must deal with both now and when it is imminent. But, unlike taxes, tax honesty cannot die.

In conclusion, my two statements below of 05/29-30/06 are still wholly applicable, as qualified above, especially regarding the ambiguity of the law. The first statement includes responses to all rebuttals received at the time of presentation and is highly compelling. The second statement also cannot be ignored, as it provides supplemental circumstantial evidence, just as one would expect to find given the legal evidence. The full discussion is still available at http://www.losthorizons.com/Forum3/topi ... PIC_ID=349

SHORT COURSE IN CRACKING THE CODE

The following citations, summaries, paraphrases, and conclusions are presented as a short course in Cracking the Code. As far as possible, the citations are relevant, the summaries are accurate, the paraphrases are justified, the conclusions are logical, and the bottom line is undeniable: payment for labor in itself is not income.

1. All taxes which fall indifferently on (i.e., are laid on) every species of revenue are capitations (i.e., direct taxes). "The taxes which, it is intended, should fall indifferently upon every different species of revenue, are capitation taxes." —Adam Smith, 1776 (Wealth of Nations 5.2.4)
2. No direct taxes are both Constitutional and unapportioned. "No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken." —Constitutional Convention, 1787 (Constitution)
3. The tax laid on incomes is both Constitutional and unapportioned. "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." —Congress, 1909 (16th Amendment)
4. Given 1-3, it follows that: not every species of revenue (i.e., every payment), in itself, is income. "We must reject ... that all receipts— everything that comes in— are income." —Justice Mahlon Pitney, 1918 (Southern Pacific v Lowe, 247 US 330, 335)

5. A tax on income as property (i.e., an apportioned tax on income and property) is a direct tax. "The power to tax real and personal property and the income from both, there being an apportionment ... is a direct tax in the meaning of the Constitution." —Chief Justice Melville Fuller, 1895 (Pollock v Farmers, 158 US 601, 634)
6. The income tax is in its nature an excise (i.e., indirect tax). "Taxation on income was in its nature an excise entitled to be enforced as such." —Chief Justice Edward White, 1916 (Brushaber v Union Pacific, 240 US 1, 17)
7. Excises are taxes on activities like commodity transfer, occupational license, or corporate privilege (i.e., activities properly taxed indirectly). "Excises are 'taxes laid upon the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupations and upon corporate privileges'." —Justice William Day, 1911 (Flint v Stone Tracy, 220 US 107, 151)
8. Given 5-7, it follows that: the income tax cannot tax income as property, but taxes activity properly taxed indirectly (i.e., activity done for income). "Tax is measured by net profits or gains, and is not imposed upon gross income nor capital nor other property .... Income as thus defined does not embrace capital or principal, but only such gains or profits as may be realized from rent, interest, salaries, trade, commerce, or sales of any kind of property, and so forth, or profits or gains derived from any other source." —Tax law draftsman Cordell Hull, 1913 (Congressional Record) "It is an excise tax with respect to certain activities and privileges which is measured by reference to the income which they produce." —Tax law draftsman Morse Hubbard, 1943 (Congressional Record)

9. Right to liberty (i.e., lawful liberty) is a Constitutional right jurisdictionally reserved to the people. "We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness." —Thomas Jefferson et al., 1776 (Declaration) "Nor shall any person ... be deprived of life, liberty, or property, without due process of law .... The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." —Congress, 1789 (5th and 10th Amendments) "Nor shall any State deprive any person of life, liberty, or property, without due process of law." —Congress, 1866 (14th Amendment)
10. Right to common work is part of right to liberty. "The liberty thus guaranteed ... denotes not merely freedom from bodily restraint but also the right of the individual to contract, to engage in any of the common occupations of life ...." —Justice James McReynolds, 1923 (Meyer v Nebraska, 262 US 390, 399) "Included in the right of personal liberty and the right of private property— partaking of the nature of each— is the right to make contracts ... of personal employment, by which labor and other services are exchanged for money or other forms of property." —Justice Mahlon Pitney, 1915 (Coppage v Kansas, 236 US 1, 14)
11. Congress cannot tax, in themselves, Constitutional rights jurisdictionally reserved (i.e., reserved to the people). "The first amendment, which the Fourteenth makes applicable to the states, declares that 'Congress shall make no law ....' It could hardly be denied that a tax laid specifically on the exercise of those freedoms would be unconstitutional .... A state may not impose a charge for the enjoyment of a right granted by the federal constitution." —Justice William Douglas, 1943 (Jones v Opelika, Murdock v Pennsylvania, 319 US 105, 108, 113) "The power of the state in that respect is not unlimited, and one of the limitations is that it may not impose conditions which require the relinquishment of constitutional rights." —Justice George Sutherland, 1926 (Frost v California, 271 US 583, 593, 594) "To take over to its control any one of the great number of subjects of public interest, jurisdiction of which the states have never parted with, ... by a so-called tax ... would be to break down all constitutional limitation of the powers of Congress." —Chief Justice William Taft, 1922 (Bailey v Drexel, 259 US 20, 38)
12. Given 9-11, it follows that: Congress (i.e., by income tax) cannot tax common work, in itself. "It has been well said that 'the property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property.' ... The right to follow any of the common occupations of life is an inalienable right, it was formulated as such under the phrase 'pursuit of happiness' in the declaration of independence." —Justice Samuel Miller, 1884 (Butchers v Crescent 111 US 746, 757, 762, quoting Adam Smith)

13. Given 4 (not every payment, in itself, is income), 8 (income tax taxes activity done for income), and 12 (income tax cannot tax common work, in itself), it follows that: income tax cannot tax common work done for payment, in itself. If it ever did, it would be not income tax but direct tax, and a capitation in Smith's view. "All subjects over which the sovereign power of a state extends, are objects of taxation; but those over which it does not extend, are, upon the soundest principles, exempt from taxation. This proposition may almost be pronounced self-evident. The sovereignty of a state extends to everything which exists by its own authority, or is introduced by its permission." —Chief Justice John Marshall, 1819 (McCulloch v Maryland, 17 US 316, 427, 429) "The capitation which has been levied in France ... rated ... the lower orders of people, according to what is supposed to be their fortune, by an assessment which varies from year to year .... Serjeants, attorneys, and proctors at law ... in the first poll-tax were assessed at three shillings in the pound of their supposed income." —Adam Smith, 1776 (Wealth of Nations 5.2.4)

Supplemental: The citations are all from founding documents (including the founders' economic authority), Supreme Court Justices, and authors of the tax law themselves, and have been selected for appropriate context. The summaries are taken as far as possible from the actual words of these authorities. The paraphrases, marked with "i.e.", have been supplied only for demonstrating logically equivalent synonyms, as justified below. And the conclusions are formal logical derivations of syllogisms in sorites form. 1. Taxes laid on all revenue clearly also fall indifferently on all revenue. 1. Smith's view of capitations is broad but always refers to direct taxes, taxes regarded as laid directly on property. 4. Revenue means money as linked to a particular activity, or money regarded only at the time of payment, and income is logically a subset of revenue; outside of the appropriate accounting period, the same money is property but is not revenue or income. "We are bound to consider accumulations that accrued to a corporation prior to January 1, 1913, as being capital, not income, for the purposes of the act." —Justice Mahlon Pitney, 1918 (Southern Pacific v Lowe, 247 US 330, 335) 5. Apportioned tax on income is still an extant power of Congress even after 1913, so this decision is still relevant; if Congress invoked this power, it would be directly taxing income as property. 6. The type of indirect tax which the income tax constitutes is not relevant, though generally excise is an acceptable description. "Whether the tax is to be classified as an 'excise' is in truth not of critical importance. If not that, it is an 'impost' ..., or a 'duty' .... A capitation or other 'direct' tax it certainly is not." —Justice Benjamin Cardozo, 1937 (Steward v Davis, 301 US 548, 581, 582) 7. Other excises have been sustained, such as gift and inheritance taxes, but in every case the indirect tax is tied to an actual activity; so the list can be summarized as "activities properly taxed indirectly" or "fit subjects for excise". 8. Activities proper for income tax are obviously only those which are intended to generate income. 9. Right to liberty may be deprived by due process of law, but within the law is still an unalienable Constitutional right. 11. People's rights being trumped by federal control via tax or penalty was actually only charged in extreme cases, and ordinary taxes have been laid on activities within state or personal jurisdiction; but taxes were not permitted to extend to Constitutional rights except via properly excisable activities connected to those rights. "An excise ... extends to vocations or activities pursued as of common right. What the individual does in the operation of a business is amenable to taxation just as much as what he owns." —Justice Benjamin Cardozo, 1937 (Steward v Davis, 301 US 548, 580, 581) 12. Congress, unlike state governments, is Constitutionally limited in its choice of proper subjects for an income tax.

Direct versus indirect taxation is incidental, but I think the proper distinction is that the subject of direct taxes is real or personal property, while the subject of indirect taxes is truly activity, though often property-related. Thus "unavoidable" (the necessity of being) and "avoidable" (the option of doing) are valid shorthand, but should refer primarily to the subject of taxation; the use of such words to indicate ability to shift economic burden is secondary. "Ordinarily, all taxes paid primarily by persons who can shift the burden upon some one else, or who are under no legal compulsion to pay them, are considered indirect taxes; but a tax ... the payment of which cannot be avoided, are direct taxes." —Chief Justice Melville Fuller, 1895 (Pollock v Farmers, 157 US 429, 558) "No sound distinction existed between a tax levied on a person solely because of his general ownership of real property, and the same tax imposed solely because of his general ownership of personal property .... A direct tax on the property ... must be apportioned .... Duties, imposts and excises ... are not the essential equivalent of a tax on property generally, real or personal, solely because of its ownership." —Justice Edward White, 1900 (Knowlton v Moore, 178 US 41, 82) "The tax ... may be described as an excise upon the particular privilege of doing business in a corporate capacity .... The element of absolute and unavoidable demand is lacking. If business is not done in the manner described in the statute, no tax is payable." —Justice William Day, 1911 (Flint v Stone Tracy, 220 US 107, 151-152)

RECAP/OTHER FACTORS

First, "income derived from employment" is always grouped with businesses, trades, vocations, professions, and so does NOT mean work-for-pay. "Employment" in this grouping means for-profit business, often self-employment, which excludes common laborers (unless and until they are tricked into declaring themselves for-profit businesses).

Second, "income derived from salaries" may well mean only income derived from US salaries and not work-for-pay; because the 1921 tax specifies that such income includes [only] government compensation, regarding "including" as limiting via ordinary construction. (The 7701(c) language was not added until 1926.)

Third, "income derived from salaries", after deducting income derived from US salaries over threshold, is not a null class in this case as might be objected; because income derived from salaries is regarded as including at least the under-threshold portion of salary (which then becomes taxable to the degree that enough other income is present to push it over threshold). That is, no statutory problem arises with regarding "including" as limiting here. However, one might argue that "in the case of" expands "includes" and permits consideration of income derived from other salaries. Then:

Fourth, "income derived from salaries", if it is held to embrace private-sector salaries, is clearly NOT necessarily the salary (or compensation) from which the income is derived; because it is a different case from the stated case of US salaries. For the salary to equal the income, the salary must be a fit subject for excise and it must completely constitute gain. I have already argued that work-for-pay is not a fit subject for excise, and the question of gain is also hotly debated but I have not formulated a full position on it yet.

(Tangentially, the metamorphosis of US salaries into income is also here evident. We started by taxing US salaries at the source, and such easily calculated "withholding tax" was rarely if ever in error. We have concluded by the tax becoming so complex that end-of-year settlement is generally expected, to correct overpay or underpay, and withholding is now rarely if ever correct; so the entire US salary is treated as income (to be settled later) rather than subject to a separate salary duty. That explains why today's "withholding tax" is regarded as a tax, assuming the withholding amount is correct, but also regarded as an overpay, if a refund is found to be due; and also why it's in a separate chapter from the imposition of the tax.)

In sum, "income derived from salaries", now called "income derived from compensation", is never equated with work-for-pay. (And "income derived from employment", where employment is classed with business, is better understood as and now called "self-employment income", and is certainly not work-for-pay.) Why?

1) I would argue from the above, especially the 1921 enactment, that there is a firm textual basis for not including work-for-pay. However, THE LAW IS AMBIGUOUS, enough that the contrary position could be held somewhat consistently with regard only to the statutory language, claiming that "income derived from salaries/compensation" has all along meant work-for-pay. So we must consider other factors.

2) In discussing income derived from salaries, the legal context has always been highly detailed special treatment of government pay, and wholly incidental and inferred treatment (if any) of private pay. (And in general, careful, conscientious people looking for a law to back up IRS claims conclude it's not there; but most legal duties are easy to find and verify by ordinary care.) That is, taxation of work-for-pay has to be discerned with penumbral goggles.

3) In enforcing the law, the executive has until the 40s completely avoided private payors. To give the correct statistic I alluded to earlier, the Treasury Department found that "for 1936, taxable income tax returns filed represented only 3.9% of the population". (But I don't want to have to quote every page of CtC here, that would do PH a great disservice.) That is, no one had these goggles before 1936.

4) In enforcing the law after the 40s, the executive has consistently relied on terms of art which all CtC readers recognize as proving income if one stipulates to them. IRS never makes any claim based on any other nexus proposed by protestors: never "you have a zip code or SSN", "you printed your name in all caps", or "the flag has a gold fringe". Only "you admitted being an employee, earning wages or compensation or miscellaneous income, being in business"; or else "your position is frivolous because you goofed in escaping our terms of art". That is, pay for labor is NEVER treated in court as income IN ITSELF, but always because of a term-related nexus.

5) No one explains why the above suspicious behavior is so endemic, which adds to the suspicion.

6) Cui bono.

7) Finally, there is manifest evidence that the Constitution prohibits taxation of work-for-pay as an excise (meaning that for the government to say the opposite would be illegal and punishable). This evidence appears earlier in the thread, but I will return to it again. (DBE was unable to apply the rules of logic to the syllogisms. But basically, if the dicta I listed are correct, if I have correctly summarized them, and if the (mostly mechanical) logical steps are correct, the proof is ironclad. DBE's apparent inability to make the logical conclusions does not impeach the argument; nor did any of his rebuttals disprove any of the dicta, my summaries, or the logical steps.)

Work is not taxable in itself; pay is not taxable in itself. Shalom.

[Nikki]

You have yet to demonstrate how compensation you receive for personal services is excluded from income.

Your conclusions are based on assumptions which are contrary to law.

Try again.

[jg]

"Why is your work for pay (since it increases your wealth, when realized and is under your dominion) not included in 'gross income' of section 61?"

Although I read the OP, all that I could gather from it was the opinion that it is not Consitutional to tax certain sources of income, including compensation for services.

Did I correctly glean your answer (using the term in the broadest possible sense) to the question?
If so, what is the legal basis for that opinion?

Or, what is your direct answer to this direct question?

[Quixote]

Usually only the worker may assess gain from work ...

Most TPs just want to self decide the law. JB goes a step further by self deciding reality. He thinks that he gets to decide if he received a gain, regardless of the facts.

[John J. Bulten]

Nikki, I presume that by compensation excluded from income you mean compensation excluded from deriving income. Technically, compensation is not excluded from deriving income; compensation is a source which derives income, and the question is how much income is derived, answered above.

Your second statement lacks specificity, and comes right out of the 3176 boilerplate text, so cannot be answered. You ought to know that the IRM prohibits that from being a legitimate response. Try again.

JG, of course it's not Constitutional to tax the sources, the income tax only taxes income derived from sources. It is Constitutional to tax income derived from compensation. The question is how much income is derived.

I could thus make my direct answer: 1) Work for pay is not included in gross income because it is a source of income, not income itself. Income derived from pay is included in gross income.

But the direct answer to a slightly more accurate question ("Why does your work for pay not derive gross income?") would be: 2) Because deriving gross income requires making accounting assumptions; under the assumptions I chose, supported by GAAP and IRC, gross income derived from pay was zero; and no evidence to the contrary has appeared. That also answers Quixote's strawman. The burden of proof shifts to those who would hold that a clause of GAAP or IRC was violated. More in the next draft.

[Tax Guest]

All that work and you still can't figure out what income is. If I have an increase in wherewithal from exchanging something of value with another, I have income as simply defined in both GAAP and the IRC. Anyone knows what that feels like, because they now have an increase in something they can now spend, and 30 pounds of rhetoric doesn't make it nonexistant. Nothing in GAAP or IRC or any court case supports your mindless, endless, complicated and self-important stream of drivel about your misunderstanding of simple concepts. Saying there is such a thing (support for your nonsense in GAAP) and then spewing streams of specious and pseudo-legal ramblings to attempt to support it, doesn't make it so. Your understanding of GAAP is pitiful. No one can get anywhere in a logical argument with you because you can't tell the difference between logic and nonsense strewn with legal terms. Stop wasting your intelligence on a losing proposition.

[jg]

JG, of course it's not Constitutional to tax the sources, the income tax only taxes income derived from sources. It is Constitutional to tax income derived from compensation. The question is how much income is derived.

I could thus make my direct answer: 1) Work for pay is not included in gross income because it is a source of income, not income itself. Income derived from pay is included in gross income.

But the direct answer to a slightly more accurate question ("Why does your work for pay not derive gross income?") would be: 2) Because deriving gross income requires making accounting assumptions; under the assumptions I chose, supported by GAAP and IRC, gross income derived from pay was zero; and no evidence to the contrary has appeared. That also answers Quixote's strawman. The burden of proof shifts to those who would hold that a clause of GAAP or IRC was violated. More in the next draft.

No assumption is being made in the law that I am aware of; so please show any.

Nothing has shifted,as you have not demonstrated how you imagine that you derive no income from the pay for the work you do. It is an accession to wealth that you realized over which you have dominion; hence it is included in gross income under section 61. That is all that is required, as you have been shown.

Are you claiming you have no accession of wealth?

[wserra]

John, I can't help but wonder if you have run any of this stuff past someone who has any substantial formal training in law. You know, pay for work is not income but rather a source of income, the Constitution doesn't permit it to be taxed, that sort of happy horseshit which has resulted in people repeatedly going to jail. How about Terry Doverspike? He's been around the block, and you respected his judgment at least at one time. I bet you did run this stuff by him at least once. He told you that you were full of it, didn't he?

But nonetheless, you continue to sludge it out to people who don't know better, some desperate, some just greedy, playing guru. Why, even on your seriously mistitled "taxhonesty" site, you don't disclose to your readers that your heroes - Schulz and Hendrickson - lose every time they go to court. People who follow your methods, such as they are, have a track record of losing body parts to meat grinders.

Tell us, John, what do you do for a living?

[Nikki]

Nikki, I presume that by compensation excluded from income you mean compensation excluded from deriving income. Technically, compensation is not excluded from deriving income; compensation is a source which derives income, and the question is how much income is derived, answered above.

Your second statement lacks specificity, and comes right out of the 3176 boilerplate text, so cannot be answered. You ought to know that the IRM prohibits that from being a legitimate response. Try again.

JG, of course it's not Constitutional to tax the sources, the income tax only taxes income derived from sources. It is Constitutional to tax income derived from compensation. The question is how much income is derived.

I could thus make my direct answer: 1) Work for pay is not included in gross income because it is a source of income, not income itself. Income derived from pay is included in gross income.

But the direct answer to a slightly more accurate question ("Why does your work for pay not derive gross income?") would be: 2) Because deriving gross income requires making accounting assumptions; under the assumptions I chose, supported by GAAP and IRC, gross income derived from pay was zero; and no evidence to the contrary has appeared. That also answers Quixote's strawman. The burden of proof shifts to those who would hold that a clause of GAAP or IRC was violated. More in the next draft.

First of all, that's total bull, totally unsupported by law. But, please, show us exactly where (other than from the same location where monkeys fly) you came up with that ASSumption.

Second, if you bother to actually look at acounting standards, you won't find a single one that relates to a cash-basis, salaried or hourly-paid person with respect to computing gross income.

Finally, what exact accounting rules, tax laws, or tax regulations support your contention that "gross income derived from pay was zero?"

[grammarian44]

We are winning this battle in court and pressing their retreat to the next level.

Once pressed in court, your argument has two possible outcomes:

1. You lose. I think this is the far, far likelier outcome, but I'm not going to dissect all the mistakes of law you made in the above post. To do so is futile because you've already turned wage earners into Supreme Court justices by allowing them to attach whatever meaning they wish to their economic activities.

2. You win. In this case, what do you think will happen? Will the federal government simply shrug its collective shoulders and accept that it will have to let workers keep their money? Or will they simply rewrite the law to make it possible to continue collecting more or less the same amounts they are now collecting?

The idea that there is some secret way to use the law to escape income taxes is ludicrous. The law--including the Constitution--wasn't made in heaven. It was made by people. They can rewrite the law whenever they want. We elect them for that purpose. If you win, they will simply rewrite the law so they can continue to tax your income or your assets in one way or another.

The real reason wages are taxable income is that Congress and the American people on the whole, while never enjoying being taxed, have accommodated themselves to the need for taxation. Your attempts to wiggle out of that tax are useless, not only because you completely misunderstand the law as written, but because you completely misunderstand the fact that people write the laws and always have the power to rewrite them.

If you really think wages should not be taxed, then you should work to elect legislators who share your views and would enact them into law. The very fact that you direct so much attention to combing existing law for an escape route instead of campaigning for individuals who support your views reveals that you yourself do not believe your views could win widespread acceptance. In a sense, you've already given up.

[Florida]

Nikki, I presume that by compensation excluded from income you mean compensation excluded from deriving income. Technically, compensation is not excluded from deriving income; compensation is a source which derives income, and the question is how much income is derived, answered above.

Your second statement lacks specificity, and comes right out of the 3176 boilerplate text, so cannot be answered. You ought to know that the IRM prohibits that from being a legitimate response. Try again.

JG, of course it's not Constitutional to tax the sources, the income tax only taxes income derived from sources. It is Constitutional to tax income derived from compensation. The question is how much income is derived.

And you said you, as the employee, get to determine how much your income is. How convenient!

I could thus make my direct answer: 1) Work for pay is not included in gross income because it is a source of income, not income itself. Income derived from pay is included in gross income.

Your pay is your income. Its your compensation for services. See section 61, then see section 63, then see section 1. if you think you know what youre talking about, go to court and raise this dumb argument.

game over.

[Nikki]

Sorry, no checks. The clearing operation, remember?

Also, no inspected foods, no medicine other than what he can buy in Mexico or Canada.

No air travel (controllers), no weather forecasts. Also, turn in that GPS system in the car.

[Joey Smith]

Total gibberish, along the lines of "If 'air' isn't defined, then you shouldn't breathe."

[Lambkin]

2. You win. In this case, what do you think will happen? Will the federal government simply shrug its collective shoulders and accept that it will have to let workers keep their money? Or will they simply rewrite the law to make it possible to continue collecting more or less the same amounts they are now collecting?

This, and the willful misunderstanding of the role of the judiciary, is in a nutshell what no TP can ever understand. I think they honestly believe that there is a majority who think like them, disaffected and ready to rise up given a spark, to paraphrase Leon Trotsky. Same as Larken, same as stevesy. It's this idiocy, peppered with crazy, that defines Ed Brown too. They can't accept that the majority doesn't agree, and that the three branches of our government will simply remove or ignore any hole they may find in the law.

The more reams of blather accompany the argument, the more I know I don't even need to read it to know it won't work.

[Red Cedar PM]

I especially like how John tries to use GAAP as an example of why his "pay for work" is not income. If any of my clients (an individual or a business) would come to me and say they received pay for work and wondered what journal entry to make, the entry is a debit to cash and a credit to service revenue (income). I'd love to hear what the journal entry looks like in the John J. Bulten brand of accounting. Tell me, John, how would you account for such a transaction? If the credit is not to income then where does it go?

[Red Cedar PM]

But if no correct evidence exists linking my pay with any accounting requirement, I am free to choose my accounting basis among Generally Accepted Accounting Principles.

Wrong.

Tax basis in an asset is tracked separately and must be adhered to when computing taxable income. You are not free to choose your accounting basis. You as an individual are most likely a cash basis taxpayer, and you received cash for your labor and you paid nothing in exchange for your labor, therefore you have 100% gain and no basis.

[John J. Bulten]

Tax Guest, "increase in wherewithal from exchanging something of value with another" is GAAP income but not IRC income. First, you know the IRC does not define income, it's defined by the context of the 16th Amendment, Eisner v Macomber, Merchants v Smietanka, etc. Next, if the increase took place in 1912, it's not IRC income, but it is GAAP income (an application of the jurisdiction principle, acknowledged exactly this way in Southern Pacific v Lowe, my footnote 4 above). Next, exchanging work for pay does not increase my wherewithal: for every receipt of pay there is an expense of TIME and ENERGY. I can spend the pay but I can no longer spend the time and energy which I exchanged for it. "Anyone knows what that feels like." In GAAP, it is accounted by converting time and energy into the constant dollar unit of measure. In IRC, it is accounted by not taxing the 1st and 14th amendment rights to liberty, unless excising some federal activity attached to them.

JG, what I mean by accounting assumptions should be familiar to you. If pay were "wages", the IRC specifies what amounts to the zero-basis assumption: that the cost of labor exchanged for "wages" is zero. This is a legitimate assumption as written, because the only people earning "wages", i.e. government/corporate/similar, are volunteering their time as servants and so can legitimately be mandated to a zero basis. However, if pay is not "wages", no accounting assumption exists in the IRC for determining how much income derives from it. Something I am adding in the above which I didn't realize last year is that if someone wanted to use the "wages" zero-basis assumption in determining income/gain from pay, they are free to, and were even free to in 1862. The modern IRC dilemma is only the logical upshot of government's financial interest in encouraging people to assess at zero basis, and discouraging them from asserting their right to assess their own gain.

And yes, I did demolish your Kowalski assumption for those with any logic training. You say: (1) John's pay is accession-etc.; (2) all accession-etc. is income; so (3) John's pay is income. I agree with (1), but demonstrated that Glenshaw and Kowalski do not prove (2). To repeat, Glenshaw does not say accession-etc. is sufficient to prove income (i.e., (2)); it says it is necessary to prove income (i.e., all income is accession-etc.). The statement "here we have" does not say every accession-etc. is income, it says a condition necessary to having income is accession-etc., without stating the other obvious condition (not in view) that Congress must have jurisdiction. In Kowalski, Glenshaw is stated as if it has become a sufficient condition, but that is because congressional jurisdiction was already stipulated by Kowalski's admission of "wages". The sufficient condition is accession-etc. with congressional jurisdiction. If you were to argue that accession-etc. alone is always IRC income, it is further answered by the comments to Tax Guest.

WSerra, I just found Terry Doverspike's number on Google, but thinking about legal counsel in 2005 I figured I'd run it past Dan Evans first ("DBE" on LH), who seems to have the most requisite experience. I was surprised to find he had nothing to contribute. I told him exactly where the 2 errors were on his FAQ (which he still hasn't corrected, even though he could do so without forsaking his position simply by being as deceptively compliant as the IRS), but he put no substantive reply to it. (Dan, if you like, I'll draft exactly how you can change those 2 errors in a way that sounds like your position but is also legally accurate.) On the Once More thread I quoted his website twice after I'd proven pretty directly that he had just made an admission which completely vitiated his FAQ, and I got nothing back on it from anyone.

However, I have lately started working with Randy White, an independent paralegal with years of hard litigating experience (I'm sure you'll let me know what dirt you've got on him), and we see fully eye to eye. I don't hold "the Constitution doesn't permit [pay for work] to be taxed", just not taxed in itself. The Constitution does extend to tax pay for work (Steward v Davis, my footnote 11 above), but only if associated with an excisable activity. As for pay being a source rather than income, that is a very basic distinction present in the 16th, Pollock, and Brushaber. The Brushaber state of affairs is: you can tax the income in the nature of an excise, but not the sources. The fact that compensation/pay and the other items of income are sources is manifest by the common statutory formula "income derived from" salaries, etc. (which became constitutional): though not in the present IRC, the statutory formula informs that the items of income are in fact items from which income is derived, called "sources" in the 16th. I'm sorry you feel this basic concept is jailworthy.

I haven't touched taxhonesty.info in a long time, but will someday soon. I don't think it amiss to mention Bob's and Pete's records thereon. Let's see, Pete won three lawsuits, and I'm still looking for the ruling on the fourth, but I understand he wasn't enjoined. Bob has won a large number of lawsuits, and lost a large number also. IIRC, he once joked that in one of his victories, he sheepishly presented a show cause order, and the judge was so impressed he gave Gov. Cuomo's lawyer 2 minutes to run across the building to the judge's office to argue (unsuccessfully) against it.

If you recall American history, our patriots are not moved away from their convictions: neither by threats of meat grinders nor by their execution. Firm convictions about truth cannot be conquered except by greater truth. And I work for a living.

Nikki, 1) you well know that the determination (I said "deriving") of gross income or gain is an accounting function (determining monetary amounts is a definition of accounting), and that GAAP permits various ranges of accounting assumptions. 2) I did brush up on accounting standards this week; of course there, annual GAAP income (gain) of an individual is called "change in net worth". But no, I won't find specific GAAP about determining gain on a work-for-pay transaction, which is basically my point: since there is no direct GAAP or IRC guidance, I'm free to choose among otherwise legitimate assumptions, supported by their silence. 3) Were I to prepare CPA-level financial statements, they would show a negligible or negative change in net worth in the appropriate years, meaning I've got about the same amount of money etc. as last year. For supportive tax law I could just repeat my cites of where my assessment is stated as the starting point ("section 93 of the 1862 act, RS 3173 as amended, 26 USC 6012 and 7602"); and my assessment shifts the burden of proof back to its disputant.

Hi, Grammarian. I see so many strawman versions of my position at this forum that you'll pardon me if I swat them like flies. 1. I don't make "wage earners" able to determine their own meaning; by definition they earn "wages" and therefore must take the statutory meaning. But as for me, I have the Section 93 right to assess my gain, since I'm not a 3121(a) or 3401(a) "wage" earner. 2. I don't have a secret way to escape income taxes; I'm subject to income taxes on all my income (even though I don't have any). 3. I agree wages flow into taxable income and I don't try to wiggle out of the tax on wages or income; I affirm its every clause. They are the very clauses that, without any wiggling, demonstrate the W-2 errors and the "nonwage" nature of my pay (see my Position Statement at http://losthorizons.com/forum3/topic.asp?TOPIC_ID=1458 for proof). The length of this piece is not wiggling, but is given to answer the additional questions of Quatloos types. 4. I don't think IRC "wages" should not be taxed; I really don't have much opinion on whether Congress should or shouldn't tax those classes described in Chapters 21 and 24. I don't have any desire to change the law; it's fine as written.

That said, your main point is excellent, especially seeing how the increasing rhetoric in favor of "tax reform" is keeping pace with the tax honesty community's increasing understanding, communication, and application of the tax law as written. (This may surprise you, but since CtC teaches that the law is valid and Constitutional, and new schemes might not be, CtC readers have learned to love and uphold the law.) At any rate, your reasonability suggests that I might be quite interested in your dissection of mistakes of law. Oh, and by the way, Ron Paul for President!, as I told the folks in front of me at the drive-thru today, before reading your post.

Florida, it's not a "compensation tax" on compensation (a source of income), it's an income tax on "income derived from compensation". Congress is prohibited from taxing the sources by Pollock, and permitted to tax the income by Brushaber. In the case of government workers, corporate officers, and the like, the income amount is equal to the compensation amount. For others it may or may not be. This is what requires the stilted statutory and regulatory "item of gross income" language: item means 16th amendment source. Sorry you didn't know that, that is basic to the law. And I'm not a 3401(c) employee, thank you.

Kickback, I will pay all taxes on income and wages (even if I should someday earn some), and all taxes on pay, salary, earnings, remuneration (even if they should someday derive taxable income), and all tax required by all laws; and render to God what is God's.

There's a relatively effective way to avoid all systems and services even partially federally funded; I've often considered it; it's to move to another country. Especially one where the tax is not deceptive and one would be proud to pay it, even if quite high: just as I proudly pay all tax required by law in this country. I would have no problem making the swap in that way, with complete honesty.

But unless and until I do, it's easy to stay principled. Since the Grace Commission reported that all individual income taxes do not suffice to pay national debt interest, I could just do without the federal benefits granted to me by the Federal Reserve (there are plenty of alternative currencies) and keep the other ones, for which I pay taxes in other ways. I gladly pay the gas tax in exchange for federal upkeep of roads. I gladly pay state sales tax and property tax in exchange for state services. I gladly pay the corporate income tax (which is passed to me in increased product cost; BTW that's why it's called an indirect tax) in exchange for the "benefits" of corporate regulation etc. This country operated quite well for 80 years without either exorbitant taxation or those federal services-- which is appropriate for having been founded on tax protest and civil disobedience.

Lambkin, I read your posts with interest, but I don't know anyone in tax honesty who thinks the majority agree with us. I accept the consequences of my convictions (even knowing that those consequences may someday include a less enjoyable form of conviction), and I accept that the government and its sponsors are likely to be working on a better Constitution-routing solution than their current one. So I deal with it. If you dislike length, I will give you a simple answer to any simple question.

Red, you know the basic principle that tax accounting uses thoroughly different rules than business accounting, and that's why credits to service revenue (which sounds fine to me) do not always flow into taxable income. But you've nailed the zero-basis issue (and are the first one who did): you assume I paid nothing to be able to labor. However, no one can labor without paying every one of the ordinary expenses of life, every one of which is a deductible business expense if paid to maintain a business machine but is considered nondeductible if paid to maintain the self. These expenses include fuel (food), maintenance (clothing, shelter, medical), improvements (education), transportation, insurance, downtime (recreation), long-term business investment (family), and other overhead. My charitable contributions are also otherwise deductible. The only gain left is increase in net worth, which is negligible, as I've said. And this is before depreciation (getting older), which is another place where the TIME I spent is converted into a GAAP unit of measure. Now, Red, I know that most of these are not deductible if I were operating a "trade or business". But I'm not, so I'm free to recognize their true value in an itemized accounting.

If OTOH you think that none or few of these should deduct from tax basis in determining income derived from compensation (not income derived from wages), please provide your authority, which I've earlier called nonexistent. If the government really could tax all pay earned for everyone's labor in this country, it would be the exact embodiment of the crossover envisioned by Brushaber, where the tax becomes a direct tax on the property of labor, and a tax on the 1st and 14th amendment rights to liberty.

[Lambkin]

[Lambkin, I read your posts with interest, but I don't know anyone in tax honesty who thinks the majority agree with us. I accept the consequences of my convictions (even knowing that those consequences may someday include a less enjoyable form of conviction), and I accept that the government and its sponsors are likely to be working on a better Constitution-routing solution than their current one. So I deal with it. If you dislike length, I will give you a simple answer to any simple question.

I don't have a question on this topic, nor does anyone else with a penny worth of sense. Hope you like living in the hole you dug.

To me you still sound like someone trying to jumpstart a popular movement without a populace.

[natty]

In statutes, regulations, case law, and IRS pronouncements, since we are only discussing gains which Congress can tax, we are not including gains which they can't tax.

There's your problem. You start with an erroneous and self-serving premise, then delude yourself with legalistic gibberish.

The truth is Congress can tax YOUR gains which include your pay for work and other income. There is only one thing Congress can not tax- articles exported from any State.

[hartley]

However, no one can labor without paying every one of the ordinary expenses of life, every one of which is a deductible business expense if paid to maintain a business machine but is considered nondeductible if paid to maintain the self.

And, since considered nondeductible, may also be considered irrelevent.

I'm not saying I disagree with your reasoning, because to a certain extent I do, but you just pretty much acknowledged that your entire argument is wishful thinking about how you wish things to be, not how they actually are.